November 9, 2004 - Phil Hodgen

President Bush: tax reformer

President Bush is taking on (ta-dah!) reformation of the tax code.

(Use “weblogs” as the user and “weblogs” as the password and you’re in the site. This works at a lot of places. Also useful is “laexaminer” username and “laexaminer” as password at some sites. Do your civic duty. Set up a username/password combo and publicize it highly).

Mr. Bush is muttering about a consumption tax as a replacement for the income tax. Uh, no. That won’t happen. Go look at every country in the world with a consumption tax (variously called a national sales tax, the GST in Canada, the VAT in Europe). Do they have an income tax, too? Yes? Well gee whiz. Looky there. Politicians don’t eliminate income taxes. They ADD a new tax to the load.

Phil’s prediction: we’ll eventually have a VAT. And we’ll keep the income tax.

But the bigger question: can George pull it off? Uh,as the Chicago Tribune says, this is “politically difficult.”

Look back at the efforts of Ronald Reagan that culminated in the wholesale rewrite of the Internal Revenue Code in 1986. Big changes, but rather less (overall) than was to be expected. That was the last great stab at simplification. And since then the trend has been towards the reloopholeification of the Internal Revenue Code. I mean, duh. Look at the tax shelter boom of the last several years.

We’ll have lobbyists pushing for protection from “simplification.”

We’ll have the social engineers of the left and right (people who have never had the responsibility of meeting a payroll for their employees–a real maturity-boosting experience if there ever was one) pushing and shoving for their favorite Cause. (A Cause that they would force all of us to support).

From my undergraduate days as an Economics major at Claremont McKenna College, I recall lots of theoritical good stuff about the value of a consumption tax over an income tax. But I think the real value in the next few years lies in the entertainment we’ll get from the political blather and the no-holds-barred pushing and shoving that’s going to erupt.

Now, the estate tax. Will Mr. Bush successfully make the estate repeal permanent? That’s more interesting. Maybe this will come to be.

But on that note I recall a discussion with a Joint Finance Committee staffer that I had a few years ago in Washington DC. He noted that the repealed estate tax came with the return of carryover basis.

I think that sufficiently few people have had experience with carryover basis in inheritance context. Carryover basis was tossed overboard in the 1970s because it was unworkable. We’re going back to it now.

Tax and Trusts